Why tech leaders need to take cognizance of WEF-Bain report on the future of consumption in India
The World Economic Forum (WEF) and Bain & Co have just released a report on future of consumption in India, which delves deep into how consumers and consumption will shape up in emerging markets globally by 2030. The trends in India are especially important for the global community as the Indian economy is not only the world’s fastest growing economy at present but also the largest young economy. China, the other growth driver of the world economy at present, for example, is an aging economy.
Indians are going through a fundamental change in attitude, as those born after 1980s now grow to become top consumers. This generation has never experienced the constraints in options and choices as consumers. That will fundamentally change consumption patterns and decision-making, according to the report.
“This is a generation (those born after 1980s) on the move that aspires to a materially better life, backed by the ability to spend and make it a reality,” the report notes.
“One of the most challenging and exciting implications for companies in India is the opportunity to shape consumption patterns – in terms of categories consumed, brands purchased or ways of accessing products and information. Companies will need to look beyond Western assumptions and rules of doing business. India’s unique combination of preferences, aspirations and prudence will require innovation specifically for this market,” says the report.
The report says that India will move to a middle-class economy by 2030 as many in the poor category will move to middle class. By 2030, about 80% of Indian households will be middle class—up from 50% today and they will drive 75% of consumption. These new middle class and upper middle class will spend 2-2.5 times more in essential goods and 3-4 times in services compared to what they spend today. Buying more, buying better and replacement buying will all drive the growth in consumption, even as consumption spreads to rural areas and small towns.
But what businesses that want to compete by leveraging technology should take note is the bold prediction by the research—income matters but connectedness matters as much.
“By 2030, more than 40% of all purchases will be highly digitally influenced, up from 20-22% today,” the report forecasts.
“Income and age may have been the traditional drivers of preferences, but in the future, preferences will be significantly driven by a consumer’s degree of connectedness to digital media and online platforms. At the same income level, the more “connected” consumer (by internet and smartphone) will spend well, own durables, premiumize to better products (according to her income) and be very aware of the brands that best serve her needs. Her less connected counterpart is likely to spend frugally, own few durables and continue buying more of the same,” it further says.
At a broad market level, this will be driven by the fact that India will have so many young people—both millennials and Gen Z (those born after 2005, who would cross 20 in this period).
For tech leaders, the message is clear. They cannot wait for building digital capability on demand. Rather, they need to proactively digitalize every process in the value chain so that the final digital touch point with the customer enables a seamless experience. It has another significant undertone. The digital experience of the customer will not just influence long-term influencing but will drive sales directly and significantly.
Is the current approach to digital platforms enough to be on top in this new regime? The CIOs and Heads of Marketing should work out the journey to the new era.
Not just experience
The report goes beyond the ‘digital’ experience of the consumer in choosing one product over other and predicts that it will impact consumption pattern too. For example, app-based food deliveries are changing eating habits and shifting food spend from groceries to restaurants. Low cost of data has already made people shift to streaming from buying physical media based music or even downloading.
Some of the discreet buying—especially of essential things like grocery, milk, shaving products—have already shifted to a subscription model, with each leveraging apps, digital payment and smart delivery, also made efficient by technology.
So, why do these trends matter for the tech leaders?
First, as digitalization gets intrinsically woven into businesses, there will be a shift to platforms, rather than a mesh of point solutions. This will make the traditional RoI model of tech investment inadequate to serve the business needs.
Two, large organizations will see disruptive innovations from startups. Traditional channels are costlier, take time to build, and require different skills to manage than these startups are comfortable with. This has acted as an entry barrier for the new challengers. As the decision-making and transition shift to digital, it will be a far more level playing field. The large companies have to be much more agile.
Three, as more and more customers move to digital channels, the messaging and experience has to be suitably adjusted. Today, there is a certain type of consumers who use these media. It will be far more heterogeneous in future.
The biggest change for tech would be that they need to think and build plug and play platforms for business users rather than creating solutions based on defined business problems. This is in sync with the changing trend in technology adoption too. CIOs are expected to proactively look out for new tech and find use cases for their businesses to create value. We have often called it an outside-in approach. These consumption forecasts will only accelerate the change to such a regime.
But the immediate challenge for proactive tech leaders is to sell the concept of proactive tech to top leadership. This report, by WEF and Bain, will be really handy to convince them.
Read the report in full at: http://www3.weforum.org/docs/WEF_Future_of_Consumption_Fast-Growth_Consumers_markets_India_report_2018.pdf